Cashing In Your Life Insurance Policy

August 3, 2021

As a life insurance policyholder, you have a very valuable asset. Most people don’t realize that they have various ways to access the cash value of their permanent life insurance. Of course, you also have the option to cancel your life policy, in which case you would receive your cash surrender value. Whichever option you choose, cashing in your life policy is possible and a relatively straightforward process.

When to Opt for your Cash Surrender Value?

When you cancel your life insurance policy and receive the cash surrender value, you’ll automatically lose your death benefit. If this is no longer relevant for you then getting your cash surrender value might be an option for the following reasons:

  • Financial hardship
  • Cash value
  • Other options

Financial hardship

Depending on your personal financial situation, you might be struggling with retirement or medical bills. That’s usually when people turn to their universal or whole life insurance policies to get support. It’s important to note though that a term life insurance policy won’t be able to help you much. That’s because it’s a simple life policy with no cash value although of course, you can still cancel it but you won’t get any money back.

On the flip side, permanent life insurance builds up a pot of cash over time. This accumulates because of the contributions from your premium payments. This total amount of money is basically what gets paid to you as a cash surrender value minus some surrender charge fees. On the other hand, you won’t get any cash payout with a term life insurance policy. Of course, the premium payments are less for a term life policy and that’s why a permanent life insurance policy holds more value.

Cash value

Over time, you’ll be able to build up a very healthy pot of cash with your premium payments. This of course assumes that you’ve had your permanent life insurance policy for some years. If it’s a relatively new life policy then you won’t have much to show and in that case, you might want to consider selling your life policy and doing a life settlement. That’s because then investors actually offer you money to be able to get your death benefit payout. You’ll find that they can usually offer you more than your cash surrender value. Although, you’ll have to confirm that with the financial numbers. Either way, the cash value of life insurance policies is a key component of your asset.

Other options

It’s worth noting that permanent life insurance gives you other ways to access the portion of the cash you’ve built up over time. For example, you can borrow or withdraw from the cash value pot of money. As mentioned, you can also do a life settlement to access the cash. Essentially, investors will use your cash value to offset your future premium payments, making your life policy even more valuable. Again, you’ll get more than your cash surrender value amount.

How does Getting your Cash Surrender Value work?

Assuming that you’re ready to go ahead and claim the surrender value of your life policy, let’s have a look at some of the defining points:

  • Life insurance policy
  • Cash surrender value
  • Tax
  • Other benefits

Life insurance policy

In order to stop paying premium payments and cancel your policy to get your cash surrender value, you’ll clearly have to first talk to your life insurance company. From there, you might also want to talk to a financial advisor or a life settlement broker. They can give you another viewpoint when it comes to other options and how they could support your personal finance.

Cash surrender value

As mentioned, this money is the sum of your premium payments to date minus surrender charge fees. This basically covers the life insurance company’s processes to cancel your life policy. Although, you can usually avoid paying this if you give notice to your life insurance company. You’ll then agree on a period of time for you to continue your premium payments.


A question that always comes up is of course whether you’ll be taxed. Whilst every situation is different, the main thing to remember is that anything up to the value of your premium payments to date is tax-free. Any money you get above that total value is potentially subject to tax. You’ll want to get some advice about that for your particular situation though. You can start with your insurance company or a broker.

Other benefits

Some permanent life insurance policies actually offer other benefits such as long-term medical support. You should therefore always check what you can first access before canceling or cashing in your life policy.

Key Takeaways and What’s Next for you?

How you access your life policy’s cash will depend on your own personal situation as well as how the numbers all compare. As you can see, there are options for you to explore. After all, you have an asset so it should work for you both today and in the future.


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